Question
Rehan Corporation is constructing is the cost of capital schedule. The target capital structure is based on the market values of the companys outstanding securities.
Rehan Corporation is constructing is the cost of capital schedule. The target capital structure is based on the market values of the companys outstanding securities. It has 22,500 bonds outstanding with a 12% coupon, paid semiannually, a current maturity of 20 years, and sell for Rs.1020 each. The yield to maturity of these bonds is 11.74%. The firm could sell Rs.100 preferred stock which pays a 12 % annual dividend for Rs.95 each. Rehan currently has 225,000 shares of preferred stock outstanding. Rehan is a constant growth firm that just paid a dividend of Rs.2.00 on its common stock which sells for Rs.27 per share, and has an expected growth rate of 10%. There are currently 2,500,000 shares of common stock outstanding. The firms marginal tax rate is 40%. Please estimate their weighted average cost of capital.
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